Madison Living Trust Attorney
Should You Set Up a Living Trust?
There are many estate planning situations in which a Revocable Living Trust is the best and most economical way to help clients meet their goals. In these situations, a Revocable Living Trust offers many advantages over a simple will. There are also a few disadvantages.
A Revocable Living Trust should be considered when:
- There are Federal Estate Tax issues, i.e. when either:
- Combined marital estate including life insurance and other non-probate assets is greater than about $1,000,000 ($2,000,000 is the amount of assets that the federal exclusion allows a person to pass tax-free this year, but that is changing almost yearly and is scheduled to go back to $1,000,000.00 ins 2011).
- Client has already made gifts to family of over $500,000, creating a gift/estate tax planning issue.
- There are State Estate Tax Issues, i.e. when the combined estate is in danger of being over $1,000,000.
- Client is in beginning stages of degenerative disease.
- Clients are a couple with young children.
- There is a second marriage.
- Client(s) are an elderly couple or individual.
- Clients want to organize affairs now.
- Clients want an institution (bank trust department) to manage their assets and give them an allowance.
- Clients have children with special needs.
- Clients have a farm or business.
- Client is a surviving spouse.
- Clients desire to avoid probate.
- Clients desire to protect assets from immature or drug dependent children.
- Clients desire to protect assets from children’s creditors (divorce judgments, medical bills).
- Client has property in more than one state.
Advantages of the Revocable Living Trust
- Control
- During Incapacity
Should the grantor become disabled, the trust will control assets during the grantor’s life. If the trust is properly funded, it eliminates the need for a guardian of the estate in case of incapacity because a successor trustee can handle all of the financial transactions for the grantor. - After Death
Disposition of your client’s assets is governed by your trust and handled by your successor trustee.
- During Incapacity
- Privacy
A will must be probated, which is a public process. Trust administration is private.- When your will is admitted to probate, its contents become public. The contents of a trust need not be made public.
- In probate, legal notices must be given to alert potential creditors of a client’s demise and invite them to make claims against the estate. Trust administration requires no such public oversight.
- Probate is supervised by the court, and involves the possibility of a court battle over assets. Trust administration requires no court oversight.
- Avoidance of probate costs
Note: The cost of probating an estate depends on how much administration is involved and the size of the estate. To avoid probate a trust must be properly funded.- Avoid court fees (.002 of the probate estate)
- Avoid attorney fees (typically about $2,500.00 in a simple probate, and much more when there is a contest over the assets or who will be the personal representative).
- Avoid personal representative’s fees (the personal representative may take 2% of the estate).
- Avoid trips to the courthouse and time and expense of filing papers
- Save time.
Trust administration is typically less time-consuming than probate, so your beneficiaries will receive your assets more promptly. - Simplify estate tax planning
When all a couple’s assets are held in a single trust, funding a credit shelter trust (family trust) is much easier. - Can help protect children of a previous marriage
Can save assets from being transferred to family of a second spouse. When a surviving spouse remarries, the assets that were meant for the family of the deceased spouse may inadvertently be transferred to the survivor’s second spouse, then to his/her family. The revocable living trust can include provisions for a credit shelter trust which will avoid this. - Can save assets from the surviving spouse’s creditors
Using a credit shelter trust can save assets from the surviving spouse’s creditors, when certain rules are followed. - Can administer property in several states with one document.
A trust avoids the costly “ancillary probate” proceedings that are required when the estate property is located in more than one state. - Can take advantage of expertise of institutional trustees to manage assets.
- Beneficiaries usually receive assets faster.
- Powers of attorney are not always honored, whereas trusts must be.
Disadvantages of Revocable Living Trusts
- No date-specific cutoff of creditors claims. (In probate, there is a cutoff date after which creditors may not pursue the estate for debts.)
- Up-front costs (cost of setting up a trust) are greater than the costs of creating a simple will.
- Trusts must be funded in order to get the maximum benefit from them, and that takes time and attention.
- There is some maintenance required, such as ensuring that future purchases, inheritances, etc. are placed in the trust.
- There are some expenses involved in after-death administration, though not as many as for a probate."
